Balance of Payments and Exchange Rate Systems

Question 1

Current Account Tx

Answer 1

• Purchases of goods/services (exports and imports - balance of trade)
• Interest and dividend receipts and payments
• Unilateral transfer payments between countries e.g. grants, gifts or aid

Question 2

Capital (Financial) Account Tx

Answer 2

• Capital outflow: when residents invest in foreign assets
• Capital inflow: when foreigners invest in domestic assets
• capital flight: when money leaves a country quickly
• real assets: factories, real estate, FDI
• Financial assets: bank deposits, loans, corporate and government bonds, equities
• short-term financial assets: MM securities

Question 3

Official Reserves Account Tx

Answer 3

• official international reserves: gold and foreign currency-denominated assets